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Tuesday, March 02, 2010

Let Them Eat Maize?

Last year, Kenya experienced the worst food crisis in her history, more than 10 million facing the prospect of starvation. In a letter to the IMF in May 2009, Finance Minister Uhuru Kenyatta and central bank Governor Njuguna Ndungu blamed it all on three “shocks” namely the post-election violence in early 2008 which impacted negatively on key sectors of our economy such as tourism, manufacturing, transport and agriculture, resulting in a year-on-year decline in real GDP of 1 percent in the first quarter of 2008; record high fuel and fertilizer prices; and the failure of the short rains in October-November 2008, resulting in a sharp decline in domestic food supplies, particularly, maize. They of course left out the one factor which is perhaps the most significant of all.

For while it is true that Kenya is prone to drought, it is equally true that famines are rarely caused by a deficit of rain. In his book Beyond the Miracle of the Market: The Political Economy of Agrarian Development in Kenya, Robert Bates shows that Kenya suffered 16 major droughts between 1889 and 1984 which averages out at one every 6 years. He also notes that relatively few of these resulted in famine. According to Mr. Bates, of all the factors that turn a drought into a famine, only one is under human control: public policy and political institutions. Nobel-prize winning economist Amartya Sen put it more bluntly in his book Development as Freedom: “…no famine has taken place in the history of the world in a functioning democracy – be it economically rich (as in Western Europe or North America) or relatively poor (as in post independence India, or Botswana or Zimbabwe.” And, after the events of 2008, Kenya was hardly a paragon of democracy.

The writing was on the wall as early as 2007 when the short rains failed. By February 2008, the country only had a stock of about 20 million bags of maize, enough to last till September. It was clear to government technocrats that maize needed to be imported by August to bridge the shortfall till the critical North Rift crop was harvested in late 2008. So they recommended to the political leadership the same solution that had been successfully implemented in 2004 when the country faced a similar crisis: a duty waiver to allow the private sector to import the needed grain.

However, for reasons that would perhaps become clear in the light of ensuing events, the politicians, at the very first meeting of the Grand Coalition Cabinet, opted for a novel and utterly untested approach. Under the Subsidized Maize Scheme, they would have the National Cereals and Produce Board, a parastatal company, import the maize and sell it, at subsidized cost, to millers who would then pass the savings on to the consuming public. This despite the fact that no national registry of millers existed, the NCPB having been stripped of this function in 2006, and that there was no way of ensuring that millers didn’t pocket the subsidy themselves. Carried out in two phases, it would involve the sale of grain from the country’s Strategic Grain Reserve as well as importation to top up stocks.

What followed was a 6 month free for all as everyone from elected officials to professionals within the civil service scrambled for a piece of the action. Former Permanent Secretary for Governance and Ethics, John Githongo describes it as “cannibalistic corruption,” as the very people entrusted with safeguarding the lives of 10 million starving Kenyans literally snatched the food from their mouths. And by the time they were done, not only was there no subsidized maize, but the price of the commodity had doubled pushing it even further out of reach.The consequences were devastating. By January 2009, fully a quarter of the population was starving and, according to the International Rescue Committee (IRC), over a fifth of children under age five were malnourished. That month, the government declared a National Disaster, reversed course and waived duty on imported maize, the course originally recommended by its technocrats.

As food prices rose, so did public pressure for an accounting. A forensic audit of the scheme by PriceWaterhouse Coopers revealed the extent of the rot and more importantly, linked it back to the original decision. Companies in which government officials, including Cabinet Ministers, had interests were either allocated maize despite not being millers, or received lucrative contracts related to the industry. MPs admitted to buying maize from the NCPB as well as writing letters requesting for allocations to individuals known to them, according to Githongo a clear violation of the Public Officer Ethics Act. An insurance company in which the Minister for Agriculture held shares was awarded a tender to supply gunny bags. In fact, almost a third of the subsidized maize allocated from the country’s strategic grain reserve was sold to “traders” posing as millers, who then passed it on to the real millers, in return for “facilitation payments.”

Additionally, maize was imported at more than double the price paid to local farmers, raising queries about the manner it was sourced. A parliamentary committee report recommended investigations of “the personal assistant to Prime Minister, the Prime Minister’s family, the son and associates” with regard to the importation of maize. The total cost of the scam to Kenya’s starving taxpayers is expected to exceed Kshs. 2 billion. Despite all this, an investigation by the Kenya Anti-Corruption Commission was unable to find any evidence of wrongdoing

Makes one wonder: Did the Cabinet plan it all from the very beginning? This is what PwC calls the “big picture question –whether the whole exercise was from the outset designed to fail and to provide a means for considerable financial exploitation at the expense of the state.” Though the auditors are reluctant to give a definitive answer, it is hard not to reach that conclusion given the history of corrupt deals. According to Githongo, it would hardly be the first time scoundrels have created a crisis and then sought to benefit from it. He points to the power rationing scheme of 1999 which he attributes to the emptying of hydroelectric dams supposedly to clear out siltation. The consequent loss of generating capacity (since the dams take time to refill, especially when the rains fail) led to crippling power cuts necessitating the introduction of expensive private power suppliers, many with connections to the very people who precipitated the crisis.

The fact is the maize scheme was abused from its inception. It was adopted against the grain of expert advice, and provided numerous opportunities for rewarding dishonesty and theft. Most damningly, it appears that none of its political instigators will pay a price for it. What are the odds of such a deviously fortuitous set of circumstances occurring by chance?